New reports raise additional questions about state and local business incentives

NC Policy Watch is delighted to make available two new and special reports today from our friends at the North Carolina office of the national policy think tank CFED. Together, the reports raise a number of serious new questions about the wisdom and efficacy of North Carolina’s costly commitment to state and local business incentives.

The first report,Local Economic Development Incentives in North Carolina, explores the often underreported area of local business incentives. The authors looked at 338 deals between 2001 and 2008 in which businesses received local incentives in addition to state assistance from either the state Job Development Assistance Grant (JDIG) program or the One North Carolina Fund.

According to the report:

“All companies that received state incentives from the One NC Fund and or JDIG program also received incentives from county and or municipal governments. These incentives came in the form of cash grants, building and land purchases, infrastructure assistance, reduced fees, low interest loans, etc…. This study estimates that these local incentive packages had a median value of at least $200,000; the average incentive package was much higher at almost $2 million…. Even when accounting for the number of jobs connected with each incentive deal, there were over 50 cases in which local governments paid more than $10,000 per job. The most costly incentives, in terms of dollars per job, were also local incentives. While the most expensive JDIG award had a maximum cost of $37,000 per job, the study found 6 instances in which local governments offered more than $40,000 per job in incentives.”

“The three primary incentive tools North Carolina has relied on in recent years are Bill Lee Tax Credits (now called Article 3J Credits), the Job Development Investment Grant Program (JDIG), and the One North Carolina Fund. These tools may have helped the state increase investment and generate new employment opportunities. However, their effect on the most distressed areas of the state has been disappointing. The very counties that most need incentive programs to stimulate growth have been left behind in these programs. Over half of Bill Lee credits have been generated in Tier 5 counties in recent years, while only 13% of credits have come from Tier 1 counties. The One North Carolina Fund has awarded funding to distressed areas in similarly low proportions, and the JDIG program has awarded a majority of its funds to Tier 4 and 5 counties.”

The lead author for both of the new reports is William Schweke, CFED’s Vice President for Learning and Innovation. Schweke is a veteran economic policy expert and a specialist in development finance, plant closings, small and community business initiatives, local development planning, environmentally compatible development, and urban neighborhood development initiatives. He was assisted in preparation of the two reports by CFED researchers Brian Taylor and Frank DiSilvestro. This work was made possible by a grant from the Z. Smith Reynolds Foundation.

Tomorrow, December 16, 2008, Schweke, Taylor and DiSilvestro will present the details of their findings at a meeting of the General Assembly’s Joint Select Committee on Economic Development Incentives. The meeting will take place at 10:00 a.m. in Room 414 of the Legislative Office Building in Raleigh.